Wednesday, January 28, 2009

Savings Accounts

This is the 4th installment of the series 7 Alternatives To The Stock Market

Savings accounts are pretty much the simplest way to invest your money. Over 65% of Americans already use one. You put your money in the savings account, interest accrues and that’s it. Savings accounts can have some restrictions on the number of transactions or withdrawals you can make. However, there are so many different options out there that it will be easy to find one that corresponds with what you want from it. Assuming you choose a bank that is FDIC insured, which you always should, up to $250,000 of your money is completely safe. (In case you missed it, the FDIC is raising the maximum amount they will insure to $250,000 until the end of 2009 at which point it will revert back to $100,000.) Compared to many other forms of investments, they are very good for emergency funds. There will never be any risk of a loss just to get your money right away. Also unlike many other types of investments, it is reletively easy to withdraw smaller portions of your money.

One thing I would really like to emphasize is online savings accounts. Right now the interest you will be earning in a traditional savings account is pitifully low. For instance, Bank of America is offering 0.20%. While it may appeal to you because your money will be safe, it’s going to be earning you virtually nothing. If you are looking for more of a return, check out online savings accounts. It may sound unsafe, but many of these online banks have been around for years and are FDIC insured. Online banks can afford to give you a higher interest rate because they don’t have many of the expenses of a traditional bank, such as paying for a building, tellers, etc. Here is a quick comparison to show you the difference.

Online Banks Traditional Banks
E*trade: 3.01% Bank of America: 0.20%
ING Direct: 3.40%Wells Fargo: 0.10%
FNBO Direct: 2.80% Citi: 0.40%
WTDirect: 2.81% Wachovia: 0.15%
HSBC Direct: 2.60% Chase: 0.10%

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